Financial and Legal Considerations

Occasionally you, or your caregiver, would prefer to treat the worker as an “independent contractor” and just issue a Form 1099 to avoid the employer payroll tax filings. This misclassification is very common, and carries costly risks to both the household employer and to the worker herself.  Learn more about distinguishing a household employee from an independent contractor from IRS Publication 926.

A household employer is an individual who hires a senior caregiver, nanny, babysitter, maid, housekeeper, gardener, cook, personal assistant, or other individual to perform duties and provide services within your private home, and who pays a household employee more than $1900 cash wages in a calendar year (2015).

Along with monitoring the caregiver’s performance on a continual basis, Household employers must comply with:

  • employment tax laws and requirements, 
  • record keeping,
  • unemployment insurance and
  • workers’ compensation insurance requirements.

In addition, household employers must file tax forms with the Washington Employment Security Department (ESD), typically on a quarterly basis, and with the IRS in April, June, September and January. With these filings, employers remit (pay) the employee taxes withheld and the employer taxes accrued.  And finally, at the end of the year, household employers must prepare Form W-2 and distribute to your caregiver, file Form W-2 Copy A and Form W-3 with the Social Security Administration and file Schedule H with your personal income tax return.

The IRS estimates that a household employer will spend between 60 – 80 hours annually on the recordkeeping and tax compliance process. Fortunately, there are a number of resources which provide affordable, turn-key tax and payroll services that reduce this burden to a few minutes of setup time. Examples of such services are:

When you and your caregiver are agreeing on the amount of payment for services, remember to agree on the amount as a “gross” amount or a “net” amount. You will working with the “gross” amount as you compute taxes, etc. and the caregiver will be receiving the “gross” amount less withholding taxes, etc: the “net” or take home amount. 

Also be aware that accidents can happen to your employee while working for you and you need to have insurance coverage for such incidents.

 

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